Cash Is King, Credit Is Queen: How Credit Will Affect Your Success


Credit has become part of everyone's financial foundation. Without it, it is nearly impossible to purchase a car, become a homeowner or obtain any other luxury.

There are plenty of common mistakes our generation makes when it comes to handling credit, most of them psychological.

These mistakes can add up and dig you into a deep hole of debt. Although, there is good news here. While it is easy to dig yourself down, it is just as easy to build yourself back up.

There are many types of "credit" given, but the most common is in the form of credit cards. These little plastic devils have been around since the 1950s, and have been ruining lives for just as long.

Don't forget that with credit comes the dreaded credit score.

Your credit score is a main indicator of your financial health.

It is a three-digit number produced from a credit reporting bureau, such as Experian or Equifax.

Whether you are applying for a credit card, auto loan, mortgage, business loan or any other product in which you are borrowing money, your score will help the lender decide your "credit worthiness."

It is incredibly simple to lose grasp of your credit situation; however, it can be just as simple to keep it in check and let it flourish.

There are plenty of mistakes people make when it comes to handling their credit.

Most mistakes boil down to some psychology. When given a credit card, you have a credit limit. This limit can range anywhere from hundreds to thousands of dollars.

Seeing your limit for the first time can be tantalizing. Suddenly you have this magic card with thousands of dollars on it you didn’t have before.

There are a few ways this credit limit will ruin you. For starters, you don’t have any of the money on your credit limit. That is money you are borrowing from whichever institution you received the card from.

The money isn’t yours, and if you spend it, you’ll be paying all of it back and then some. That’s where a lot of people go wrong: They see this credit limit and think it’s all theirs for the spending.

That is the first mistake: spending thousands of dollars you wouldn’t normally have spent because you don’t physically have it. Now you’re paying that money back to the creditor.

Small monthly payments don’t sound too bad, but those payments come with high interest rates. In the end, you’ll be paying much more than you ever hoped.

If you don’t make these payments, you’ll be watching your credit score take a nose dive, which ultimately will drive your interest rates even higher. It's a double-edged sword.

To make things much, much worse, your credit score doesn’t particularly like that you spent all that money. Any time you spend more than 30 percent of your credit limit, your credit score goes down.

Oh, but I thought all that money was mine? Wrong! That’s where companies trick you: You’re only allowed to spend a small portion of that number.

Alright, enough gloom and doom.

Build your credit and NEVER pay interest again.

Only use your credit card for everyday purchases you were going to pay for in cash/debit. The basis for this is, if you have the cash on hand or in your bank account, that means you can afford to pay it, which means you can afford to pay it back.

Don’t use credit for purchases you couldn’t normally make

Only spend within 30 percent of your given credit limit. Earlier, it was stated spending more than this will negatively affect your score. Well, spending within this percentage will boost your score positively.

Pay your credit card balance off in full each time. When you pay off a balance in full, you don’t pay interest; that’s what credit card companies don’t tell you.

All credit card companies talk about is interest payments because that’s where they make money. If you are obtaining a credit card for the sole purpose of building a credit score, the interest rate doesn’t matter, as long as you are paying everything off in full and not spending foolishly.

Keep track of your credit score at Knowing your credit score is half the battle; most people don’t bother checking it whatsoever.

Managing your credit can be a tricky endeavor, but only if you make it one.

Stay on top of your spending; don’t make any unnecessary purchases and make sure you always pay off your balance in full.

Most importantly, if you’re already in a bad credit situation, don’t let it go any further. Start implementing these tips today, and you’ll start to see things turn around.

Getting your credit right early is huge. It can make for a financial-headache-free future.